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      Effects on European and UK energy regulation


      Current state of play

      • Authorised UK firms can easily participate in the EU’s internal energy market. 
      • Much UK legislation comes from European directives or regulations. It is often complemented by network codices, which the transmission system operators compile as ‘regulated self-regulation’ in institutions such as the European Network of Transmission System Operators for Electricity (ENTSO-E) or the European Network of Transmission System Operators for Gas (ENTSO-G). 
      • Companies can run transmission systems, or can take a share in a transmission system operator, anywhere in the EU. To do so they only need meet the national legislative conditions, which are based on the requirements of the directive on common rules for the internal electricity market and the corresponding directive on natural gas.
      • Under the regulation on guidelines for trans-European energy infrastructure, projects of common interest that are implemented into the EU list are eligible for EU financial support. An accelerated permit-granting process applies to these projects.
      • Some member states are planning to install non-discriminatory capacity markets that should be accessible to all EU energy suppliers that meet the pre-qualification terms. The EU Commission has already authorised the UK capacity market.
      • UK firms with high carbon dioxide emissions, such as electricity producers and manufacturers, participate in the EU Emissions Trading System. They can buy or sell EU emission allowances, which allow them to emit certain quantities of carbon dioxide. The EU Emissions Trading System is a key instrument in meeting the reduction targets set out in the Kyoto Protocol, which the EU and its member states have ratified. 


      What should I be thinking about now?

      • ENTSO membership 
        • As a UK transmission system operator, will I still be a member of the ENTSO-E or ENTSO-G if Brexit happens? 
        • How would EU-derived UK legislation be affected by a Brexit? Would the transmission network codices still apply? 
      • Projects of common interest and financial support 
        • Will projects of common interest be removed from the EU list if they are linked to the UK? 
        • As an investor, under what conditions will I have access to EU financial support if my investment in energy infrastructure is linked to the UK? 
        • Will I have to refund any financial support given before a Brexit? 
      • Access to and operating transmission networks 
        • As a UK energy supplier, will I have access to European transmission networks? 
        • As an EU energy supplier, will I be able to access UK grids? 
        • Would a Brexit affect any ongoing energy supply contracts? 
        • As a transmission system operator that runs a transmission system in the EU, would I have to apply for a new certificate if my shareholder is a UK company?
      • Capacity markets 
        • As an EU energy supplier, will I be able to take part in the auction process for the UK capacity market? 
        • Will UK energy suppliers be able to take part in future capacity mechanisms in the EU?
      • EU Emissions Trading System 
        • What impact would a Brexit have on trading and transferring EU emission allowances between UK and EU companies? 
        • Will emission allowances held by UK firms still be valid if the UK leaves the EU? 


      What could the position be following a Brexit?

      The answers to many of the above questions would depend on the nature of a post-Brexit UK/EU relationship

      To give an idea of the range of possible outcomes, we have considered what the position would be under the ‘Norwegian option’ and the ‘World Trade Organisation (WTO) option’ – on the basis that these are at opposite ends of the spectrum of existing models for an alternative relationship with the EU.

      The Norwegian option

      • Under this option, the UK would join the European Free Trade Association and remain part of the European Economic Area (EEA).
      • Not all EU law that affects the energy sector applies to the EEA. The 2003 ‘second common market package’ of EU internal energy market legislation was adopted by the EEA in 2005. However, there is some subsequent legislation that is not extended to the EEA. For example, there is still no decision on whether the EEA will adopt the 2009 legislation establishing the single market in electricity. Furthermore, it is doubtful whether the financial support for projects of common interest under the EU Regulation on guidelines for trans-European energy infrastructure (known as the ‘TEN-E Regulation’) will be extended to the EEA. 
      • UK membership of the EU is not necessary for a UK transmission system operator to be a member of ENTSO-E or ENTSO-G. UK transmission system operators could therefore remain members of ENTSO-E and ENTSO-G and continue to influence the development of network codices. 

      The WTO option

      • Under this option, the UK would leave the EU without any free trade agreement in place. It would instead rely solely on rights and obligations under WTO rules.
      • UK energy policy following a Brexit would be determined at national level and UK legislation could diverge from that of the EU.
      • UK transmission system operators could remain members of ENTSO-E and ENTSO-G in the same way as under the Norwegian option.